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Tax Audit Report
Presented by CA Kusai Goawala
23rd August 2015
For WICASA jointly with Pune Branch of ICAI
Regulatory
CBDT notification no. 33/2014 dated 25.07.2014.
Amendments in Form 3CA, 3CB and 3CD
Made effective for Tax Audit for assessment year 2014-15
3CA where audit conducted under any other law
3CB where audit not conducted under any law
3CD form of particulars applicable to both - certificate
CA KUSAI GOAWALA
Basic Principles underlying the amendments
Bridge between the Direct and Indirect Tax Comprehensive Information Higher level of commitments from :
Management Auditor
Updated with the recent amendments in the IT Act
CA KUSAI GOAWALA
Part A : Clause 4 : Applicability and Registration under Indirect Tax laws
To ascertain which of the Indirect Taxes are applicable
– Service tax, VAT, Excise, Customs etc
If applicable whether registered. Registration number
or any identification number allotted to be given
Auditor has to first ascertain which Indirect Tax Laws
are applicable to assessee. Exchange of Vehicle by a
service company – VAT is applicable if exceeds the
limit.
CA KUSAI GOAWALA
44AB (a) Based on Turnover – Rs.1 crore for business
Whether purchase is considered as turnover for this purpose.
and (b) Rs.25 lacs for profession. 44AB (c)& (d) Turnover lower than
above, but profit lower than presumptive profit – 44AE, 44AD, 44BB, 44BBB
Part A : Clause 8 : Sub-section of 44AB under which Audit is conducted
CA KUSAI GOAWALA
Part B : Clause 11 (b) and (c) ; Location of books to be maintained and other documents
Auditor to indicate the location where the books of accounts are maintained.
Companies Act 2013 permits maintaining books in electronic mode – increase mobility.
Cloud Environment – Where is the location of the server
Location of books at what point of time. If the books of accounts are not kept at one
location, please furnish the addresses of locations along with the details of books of accounts maintained at each location.
List of other documents examined – what is meaning of other documents.
CA KUSAI GOAWALA
Part B : Clause 17 : Property transferred at less than Stamp Duty Value – 43CA and 50C
Information to be provided :
Details of PropertyConsideration as per
AgreementValue as per Stamp Duty
Ready Reckoner
CA KUSAI GOAWALA
Contd…
50C applies to Capital Asset whereas 43CA applies to Stock in Trade.
Verify agreements and documents.
Agreement Registered but sale not recognised.
Sale recognised on percentage completion method.Agreement executed but
Registration after considerable lapse of time.
CA KUSAI GOAWALA
Part B: Clause 19: Amounts admissible under sections
32AC – Investment in new Plant & Machinery
(15% deduction on PM more than 100 cr upto Mar
15)
35(1)(i) – Scientific Research
(expenses on scientific research)
35(1)(ii) – Research by institution
(175% paid to research organisation)
35(1)(iia) – Research by any other Company
(125% paid to Company)
35(1)(iii) – Social Science or Statistical Research
(125% paid to Company)
CA KUSAI GOAWALA
Part B: Clause 19: Amounts admissible under sections
35(1)(iv) – Capital Expenditure on Scientific Research
35AD : Investments in Specified Business
◦ Capital Expenditure
◦ Specified Business
Cold chain facility
Hotel 2 star
Hospital 100 beds
SRA project
35CCC – Expenditure on agricultural extension
35CCD – Expenditure on skill development
◦ (150% of expenditure)
CA KUSAI GOAWALA
Part B Clause 21 Following expenditure to be reported even not debited to P&L
Disallowance for TDS 40a
Cash Payments – 40A(3) and (3A)
Provision for Gratuity 40A(7)
Provision for employees 40A(9)
Particulars of Contingent Liability
Amount inadmissible u/s 14A
Amount inadmissible u/s 36(1)(iii)
Details of Capital Expenditure, Personal
Expenses and Advertisement to be given.CA KUSAI GOAWALA
Part B : Clause 21(b): Amounts inadmissible u/s 40(a)
Non Resident - 40a(i)Section 195DTAASection 206AA
What if tax is not deductible as per DTAA ?
What about Imports of goods
Composite contract – Import of goods with
installation
Separate contract for installation
Not a defaulter u/s 201 – proviso –
considered as payment for 40a.
CA KUSAI GOAWALA
21(d) Disallowance/deemed income under section 40A(3)
Assertion regarding obtaining certificate not required.
However, to be obtained as audit MRL40A(3) Expenditure incurred and paid during
the same year 40A(3A) Expenditure incurred earlier year
but payment made in year under report.
PAN of the payee to be given if available
CA KUSAI GOAWALA
Clause 21(h) Section 14A
Disallowance of expenditure incurred for earning tax
free income
Whether existence of tax free income required during
the year
An investment capable of earning taxable and tax free
income – Shares of private companies – dividend
and/or capital gains CIT vs Delite Industries (Bom)
Procedure for applying 14A by AO - Rule 8D.
If investment exists during the year but no investments
at the beginning or at end of the year.
Can disallowance as per Rule 8D exceed expenditure
incurred.
CA KUSAI GOAWALA
Clause 23 Payments to parties referred u/s 40A2(b)
Ascertain parties referred u/s 40A 2(b)
Payments made = Expenditure Incurred
Also important and relevant for DTP
Very far reaching relationships
Extensive audit work and time for determination
CA KUSAI GOAWALA
Part B : Clause 28: Deem Gift – 56(2)(viia)
Transfer of shares of Closely held CompanyTo firm or closely held company (AOP not
covered)For consideration which is less than as
computed under Rule 11UA.Then the difference will be deemed as taxable
income (gift) in the hands of the transferee company
What about proprietorship concerns of Individuals or HUF (56 -2(vii) not covered)
CA KUSAI GOAWALA
Part B : Clause 29: Deem Income – 56(2)(viib)
Allotment of Shares by a Closely held companiesTo person other than Non Resident If at par the provision is not applicable If at a premium then if the share value is higher
than value as per DCF method or other method as may be prescribed.
Suppose Co A allots Shares to B at Rs.100 (FV Rs.10)
Value as per 11UA = 150Value as per DCF = 80Company will be taxed at Rs.20 (100-80)A will be taxed at Rs.50 (150-100)
CA KUSAI GOAWALA
Part B : Clause 32 (c)
Speculation Loss – 73.Loss in respect of Specified Business u/s 73A
Specified Businesses :Cold Chain FacilityWarehousing for agriculturalLaying and operating cross country natural gasBuilding and operating 2 star hotelBuilding and operating atleast 100 bed hospitalProject under SRA
CA KUSAI GOAWALA
Contd…
Project for affordable housing Production of fertiliser Set up and operating Inland container
depot Beekeeping Warehouse for sugar
CA KUSAI GOAWALA
Deem Speculative Business u/s 73
Explanation to Section 73 Company whose business income is
more than 50%. Income from sale of shares and
securitiesDeemed to be speculative income.To report :Whether company is deemed to be
carrying on speculative businessDetails of speculation lossSuppose the conditions change in
subsequent year – no set off of speculative loss CA KUSAI GOAWALA
Part B: Clause 33: Section-wise details of deductions under Chapter VIA and III
Chapter III Section 10A : Special provision in
respect of newly established undertakings in Free Trade Zone
Section 10AA: Special provision in respect of newly established units in Special Economic Zone
Whether conditions for claiming above deductions is satisfied as per Act, Rules, Guidelines, Circulars etc.
Form 10CCB ?CA KUSAI GOAWALA
Part B : Clause 34 Stringent Reporting requirement
TCS also covered
Total payment – nature of payment wise
Amount on which tax deductible out of above
Tax deducted at specified rates
Tax deducted at less than specified rates
Tax deducted but not paid
If return is not filed within time limit – then report
details of delay.
Further only if delay, statement to be given whether
all items of deduction have been considered in return.
Interest payable on delayed payment of tds and date
of payment CA KUSAI GOAWALA
CA KUSAI GOAWALA
Any Questions ?
